Your client is sued for failure to pay on a contract and says it shouldn’t have to pay because the prices were fixed by a cartel or that it was strong-armed into paying for a “bundle” of services or distribution channels even though it only wanted a subset of the
Expanded Basic. Choice. Choice Plus. Cable and satellite TV customers pay monthly fees for bundled channel packages of different sizes. The packages are becoming “skinnier,” allowing you to customize your service from a set of modules (i.e., the Family package, the Sports package, various language packages, etc.). But each module…
Since 2008, cable customers have been suing cable operators across the country claiming operators violate the antitrust laws by forcing customers to lease set-top boxes from the operator to access “premium” cable services. Plaintiffs claim that the operators have “tied” one product (the service) to another product (the box) and that the arrangement is a per se violation of the antitrust laws (i.e., unlawful regardless of any alleged pro-competitive benefits).
The lawsuits have taken a number of different paths—with some surprising twists and turns:
- The first jury trial resulted in a verdict against Cox in 2015. But the trial court then set aside the verdict on the grounds it had rejected earlier on summary judgment.
- When another operator agreed to settle claims in a Philadelphia case, the district court refused to approve the deal, finding that the settlement class was not “ascertainable.” But last week, the Third Circuit quietly reversed in a summary decision, ruling that ascertainability is not relevant where the parties have agreed to the settlement class definition.
- Meanwhile, the FCC has jumped (back) into the fray by proposing rules to force cable operators to “Unlock the Box” —or, perhaps, give the FCC the keys.
A number of courts have dismissed set-top box tying claims for failure to plead or prove that the cable operator has sufficient “market power” to coerce a customer into leasing the set-top box because cable operators face competition from “overbuilders” and/or satellite services. Others dismissed because there was no proof that anyone would have sold stand-alone boxes “but for” the alleged tying.
Just before the Labor Day weekend, however, the Second Circuit established a new and different path. In Kaufman v. Time Warner, No. 11-2512-cv (2d Cir. Sept. 2, 2016), a panel affirmed 2-1 the district court’s ruling that the plaintiffs failed to allege market power. But that ruling was only a backstop. The majority’s principal ground for affirming dismissal was that premium cable services and the interactive boxes used to access them are not separate products at all. As such, the fundamental premise of any “tying” claim—two otherwise separate products tied together by the seller—simply does not exist.
Negotiations between television channels/networks and pay TV operators are a breed apart. The stakes are high and the consequence of failure – a “dark” screen – is all too public.
But the critical factor that sets these negotiations apart is the actual regulation of the negotiations under three main categories of rules.
- Broadcasters may invoke “Must Carry” status or seek to negotiate terms for “retransmission” under FCC rules requiring “good faith” negotiations.
- Program Carriage rules protect channels and networks from certain abuses by operators. Conversely, Program Access rules ensure operators have certain rights to license programming.
- The FCC also has issued a series of orders in connection with mergers and other transactions, some of which allow an arbitrator to pick one offer or the other in “night” baseball-style arbitration when certain networks and operators cannot agree on terms of carriage.
On August 26, 2016, the FCC Media Bureau ruled that broadcasters are limited to the first bucket above, the Must Carry/Retransmission Consent rules. (In re Liberman Broadcasting, Inc. v. Comcast Corp., MB Docket No. 16-121 (Aug. 26, 2016). This is significant because it comes in the midst of an ongoing debate over the Retransmission Consent rules and the FCC’s “totality of the circumstances” test. Generally speaking, a party to a retransmission consent negotiation may seek to demonstrate, based on the “totality of the circumstances” of a particular retransmission consent negotiation, that the other party breached its duty to negotiate in good faith. Under the Media Bureau’s ruling, broadcasters may look solely to the Retransmission Consent rules to regulate their carriage negotiations.
On August 29th, a Ninth Circuit panel unanimously held that the FTC has no power to challenge “throttling” of unlimited data plan customers by mobile broadband providers as an “unfair or deceptive act.” The panel found that a core source of FTC authority (Section 5 of the FTC Act) does not apply to any “common carriers” that are subject to regulation under the Communications Act of 1934. (FTC v. AT&T Mobility LLC, No. 14-04785 (9th Cir. Aug. 29, 2016)).
If your company sells a smart device to a consumer, can it later turn the device into a paid advertising platform? Can it do so without advanced disclosure? A recent court ruling suggests the answer is “yes,” at least in New York.
2015 and 2016 saw a wave of transactions among cable, satellite, and other linear programming distributors: AT&T & DirecTV, Altice and Suddenlink, etc. That transactional wave is beginning to spawn a litigation wave, principally over interpretation and application of the pre-existing licenses and contracts between networks and distributors. A recent…